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Weekly Cannabis Report: Strong Finish To A Tough 2018

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Includes: ACB, ACRZF, ALEAF, APHA, CBWTF, CGC, CRLBF, CRON, CTST, CVSI, CWBHF, EMMBF, GGBXF, GTBIF, HEXO, HMLSF, HRVSF, IIPR, ITHUF, KSHB, MJ, MJARF, MMNFF, MRRCF, NXTTF, OGI, STZ, TCNNF, TGODF, TLRY
by: Cornerstone Investments
Summary

The cannabis sector enjoyed a strong rally in the last week of trading in 2018 with both ETFs (HMMJ and MJ) rising a solid 4.0%.

The biggest rally was among the newly listed U.S. cannabis stocks: Acreage (+52.5%), MJardin (+45.3%) and Cresco Labs (+34.4%).

Despite a difficult few months for cannabis investors, we remain confident that catalysts remain abundant for the sector in 2019.

Cannabis, Marijuana, Hemp, Cornerstone Investments

Welcome to our Weekly Cannabis Report, a reliable source for investors to receive the latest developments and analysis in the cannabis sector.

Trading Summary

The cannabis sector finally reversed its recent losing streak. The Horizons Marijuana Life Sciences Index ETF (OTC:HMLSF) gained 4.0% while the U.S.-listed ETFMG Alternative Harvest ETF (MJ) also gained 4.0%.

Canadian Large-Cap: Canadian cannabis stocks rebounded last week along with the broader market. Aphria (APHA) rose 29.1% after receiving hostile bid interest from the little-known U.S. company Green Growth Brands (OTCQB:GGBXF). Canopy (CGC) and Aurora (ACB) had single digits gains while Tilray (TLRY) and Cronos (CRON) were little changed. On the other hand, CannTrust (OTC:CNTTF), HEXO (OTCPK:HYYDF), and Organigram (OTCQX:OGRMF) all had strong rebounds following the broader industry recovery. TGOD (OTCQX:TGODF) rose 2.8% but remains 30% below its IPO price.

Canadian Small/Mid Cap: The small/mid-cap stocks also enjoyed a strong finish to the year after the recent brutal sell-off. The biggest gainer last week was Auxly (otcqx:CBWTF) which was up 36.5%. The worst performers were Namaste (OTCQB:NXTTF) which was flat and Maricann (otcqx:MRRCF) which lost 4.1%. Emblem (OTCQX:EMMBF) gained 5.7% to close at $0.92 which is a 21% discount to the implied offer price of $1.16 based on Aleafia's (OTCQX:ALEAF) share price of $1.39 and the exchange ratio of 0.8377.

U.S. Sector: U.S. cannabis stocks had a massive week with some spectacular pricing upswings on Friday. However, most of the gains were concentrated within the recent listings and the "older" stocks had a quiet week. Multi-state operators Curaleaf (OTCPK:LDVTF) and Green Thumb (OTCQX:GTBIF) gained double digits while MedMen (OTCQB:MMNFF) was down 1.0%. iAnthus (OTCQX:ITHUF) and Trulieve (OTCPK:TCNNF) both posted small gains as well. CBD operator Charlotte's Web (OTCQX:CWBHF) and CV Sciences (OTCQB:CVSI) both saw relatively muted share price movements last week.

Among the recent listings, Acreage Holdings (OTC:ACRZF) gained a whopping 52.5% to reverse prior week's 21% loss and is now trading 22% below its RTO price. MJardin (OTC:MJARF) also gained a massive 45.3% and now trades at 65% below its RTO price. Harvest Health (OTC:HTHHF) gained 16.7% and Cresco Labs (OTCPK:CRLBF) gained an impressive 34.3% as well.

Pick-and-shovel plays KushCo (OTCQB:KSHB) gained 6.4% while cannabis REIT Innovative Industrial Properties (IIPR) was up 2.0%.

Green Growth (otc:GGBXF) gained 34.8% and it announced a hostile bid for Aphria with a mere 3% premium based on its offer price at announcement.

Finishing Strong in 2018

The year 2018 will be remembered by cannabis investors as one that is filled with roller-coaster style trading and a number of significant events that shaped the sector forever. Canada officially legalized recreational cannabis and the U.S. officially legalized industrial hemp. Cannabis stocks experienced some of the greatest rallies and also some prolonged brutal selloffs. The sector was on fire after Constellation's (STZ) $4 billion bet on Canopy Growth started a wave of pot frenzy among investors. We also saw the spectacular rise and fall of Tilray and the endless stories around the scandalous Aphria and its insiders.

The cannabis sector kicked off 2018 with a strong rally that started back in late 2017. However, the selloff that followed pushed pot stocks well into negative territories. The August rally lasted for two months but all of the gains were wiped out in the last few months of the year. The two major ETFs (HMMJ and MJ) are both sitting at a 30% loss for the year which is far from ideal for investors. However, considerating the significant volatility in the sector one would expect investors to fare very differently depending on the timing of their trades. Overall, the sector experienced two full boom and bust cycles in one year which exemplified the nascent nature of this unique industry.

Despite a difficult couple of months for cannabis investors, we remain confident that catalysts remain abundant in 2019. The Canadian legalization will hopefully get back on track and LPs will be able to finally post revenue and earnings that reflect their true potential (numbers can be good or bad). Either way, it is good for investors to finally be able to assess the cannabis sector with real and reliable data. The U.S. sector will also experience continued growth in both the THC and CBD categories. The passing of the Farm Bill is a historic moment for the hemp industry and we expect more companies to enter the market in early 2019. More states are expected to vote on legalizing cannabis and existing programs are just beginning to be implemented.

Conclusion

We are working on a number of new articles to review the key events that shaped the cannabis industry in 2018. We will also present our outlook for 2019 and review the 5 predictions we made back in January. Thank you all for the support in 2018 and we look forward to an even better 2019!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.